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Foreign Automakers Driving Down American Wages

October 30, 2010Dustin Ensinger

One of the most overlooked effects of America’s failed trade policies is the growing phenomenon of foreign insourcing, which, while providing many Americans with much-needed jobs, often forces workers to take lower wages and benefits.

“The trade debate in the United States usually focuses on the jobs lost to factories in the developing world,” The Washington Post’s Peter Whorisky writes. “But the recession has forced countless skilled workers in this country to consider jobs they would have rejected in the past. They now offer foreign manufacturers a resource that was far less common just a few years ago: cheaper wages for better talent.”

Nowhere is this phenomenon more evident than in the auto industry, where foreign companies have been gradually opening more and more factories on Americans soil.

Typically, that would be viewed as a good thing. However, those foreign automakers are taking advantage on the desperation of manufacturing workers, desperation brought about because America’s trade policies have abandoned the nation’s manufacturing base.

“We are a low-wage country compared to Germany,” Kristin Dziczek, director of the Labor and Industry Group at the Center for Automotive Research, told The Washington Post. “And that helps put jobs here.”

The factories profiled in the Post’s report happens to be a German BMW factory. There, new hires are paid roughly $15 per hour, less than half the hourly wage rate of Germany’s BMW workers. When benefits are factored in, they make even less than their unionized German counterparts.

What’s more, most of the new hires at the BMW factory are not even employees of the German company. Instead, they are considered contract employees.

Insourcing not only forces American workers to take jobs that pay lower wages and offer lesser benefits, but it also drives down the wages of other Americans in the manufacturing sector and puts added pressure on America’s three automakers. Oftentimes, taxpayer dollars are used to lure those manufacturers to American soil.

Overall, the UAW estimates that roughly $3 billion has been spent on government subsidies to draw foreign automakers to America.

The problem is, those funds could be better spent supporting The Big Three, which account for two-thirds of all American autoworkers, and indirectly supports some three million domestic jobs.

Foreign automakers operating in the U.S., while hiring American workers, typically rely on foreign suppliers, offshore research and development and, of course, the good graces of federal, state and local governments in the form of tax abatements, free land, government-funded training for employees and the use of federally subsidized power.

On the other hand, U.S. automakers purchase two-thirds of all auto parts made in America, spend 80 percent of their $17.5 billion in research and development domestically and over the four year period between 2001 and 2005 invested more in U.S. plants and infrastructure than all foreign automakers combined over the past 25 years.

But the biggest victim of America’s failed trade policies and the subsequent influx of insourced jobs are the American workers.

“The price of having a more globally competitive workforce means more in the United States could fall well short of the middle-class living standards that manufacturing workers once could expect. Wages adjusted for inflation have declined for these workers since 2003,” Whorisky writes.